With the coming split from eBay, PayPal is poised to become one of the new leaders challenging the plastic card and magnetic stripe hegemony.
PayPal is a behemoth with 153 million accounts globally and 26% annual volume growth (compared to 9-12% for Visa & Amex). Over the past year, PayPal processed about $203 billion in payment volume with only $67 Billion coming from eBay. PayPals system is actually cheaper for merchants than Apple Paysince PayPals funding is attached to consumer bank accounts which incurs lower fees as opposed to Apple Pays credit card based system that has swipe and merchant account fees.
One of the first benefits for PayPal after splitting from eBay will be the ability to partner with disparate retailers beyond eBay. A major roadblock to PayPals growth has been the perception that its corporate parent was a rival to many other large online retailers. Now with that conflict out of the way, accepting payments for Amazon and Alibaba is possibleand that opens up huge growth opportunities.
Physical retail store transactions made via mobile devices are expected to hit $3.5 billion in the U.S. this year and balloon to $118 billion by 2018. Last year, PayPal acquired mobile payment startup Braintree, who currently serves as the processor for Uber and Airbnb. Braintree will continue to grow as the defacto engine for start-ups to process mobile payments in this burgeoning market.
Additionally, PayPal has a network of BLE Beacons in-store by way of their PayPal Beacon pilot program. The pilot hasnt really taken off but that existing infrastructure can be built upon. PayPal can now focus on innovation like this since management will no longer need to focus on supporting eBays core marketplace business.
The brightening of PayPals future also bodes well for ApplePay and the payment ecosystem in general. Whether ApplePay adds PayPal to their offerings doesnt matter as long as there is another player out there popularizing the digital payment marketplace. And for the overall payment marketplace, it is better to have multiple major payment systems because competition is good. If Apple Pay was the only game in town, then hackers would be singularly focused on cracking that system. But with an equally valuable target in PayPal, it can split and complicate hackers' efforts.
While some would say its the convenience of a digital wallet that is going to motivate adoption, it really comes down to security. The Chip & PIN system was the plastic card half-step attempt to secure the handling of credit card transactions by retailers. But PayPal presents an option to pay that doesnt leave your hand, cannot be skimmed (at least currently) and strengthens the entire payment system by offering an alternative. And that is a bright future for us all.
Jonathan Spooner is a retail strategist at Control Group.
